Rogers' 9% Revenue Rise Leads Canada's Big Three, But Write-Downs Rein In Rewards

Cable network and wireless operator Rogers has announced its final financial and operational results for fourth-quarter and full-year 2008, the last of the "big three" combined fixed and wireless network operators in Canada to do (see Canada: 12 February 2009: BCE Brings Back Higher Dividend Despite Swing to Loss, Canada: 3 February 2009: Bell Aliant Steers Course to Keep Profitability Steady as Growth Revenues Stall, and Canada: 16 February 2009: Telus Sees Revenues Rise by 5% But Profits Drop 29%).

Top-line growth of 9.5% for the fourth quarter from the consolidated Rogers businesses was once again the leader of the pack, reaching up to 12.0% for the full year. On measures of operating profit Rogers again led, with annual growth for the quarter at 2.0% year-on-year (y/y), or 9.6% y/y for the full year. However, as with many other businesses around the world, Rogers reported a swing to a net loss for the quarter of C$138 million (US$109) from a profit of C$254 million, largely because of assets written down by C$294 million. This was due to a lower fair value ascribed to lower industry expectations and advertising revenues—mainly affecting the TV broadcast business. Full-year profits, however, remained positive at C$1.0 billion, up by 57.3% y/y.

Wireless Results

Wireless was the main growth engine for all the operators and Rogers again led, but strong revenue growth failed to feed into operating profits for the wireless business unit. Growth in revenue was driven by increases to the post-paid subscriber base and wireless data revenues counterbalancing drops to voice ARPU and adding an extra 2% to ARPU, which hit C$74.71 for the fourth quarter. Prepaid ARPU fell by 4.1% y/y to C$15.91—likely reflecting moves to attract the lower paid subscriber base by Telus's "Koodoo" brand. Pressure is likely to remain on pricing for this segment of the market as new entrants come to market over 2009. Rogers also noted that the voice ARPU component fell by 2%, which was ascribed to lower roaming and out-of-tariff bucket use as the economy slowed down. Data revenues rose by 36% y/y to C$236 million for the quarter, reflecting growing smartphone and data card use with some 400,000 smartphones, including the iPhone and BlackBerry, being activated. One notable statistic is that smartphones now account for 51% of all upgrades, up from 18% a year earlier. This increase in smartphones has, however, contributed to the drop in operating profits, with the cost of equipment sales jumping 56.7% y/y from C$208 million to C$326 million. On the positive side of the smartphone equation, 40% of subscribers are new to the network and data has risen from 14% of network revenue in the fourth quarter of 2007 to 18% in the same period of 2008, with most smartphone users taking higher tariffs and data plans.

Despite the flagship iPhone, Rogers was static with 2008's net additions, and Telus actually exceeded Rogers in subscriber growth over the whole year—again likely the result of the Koodoo low-cost initiative reflecting trends across the southern border for moves to low-cost flexible providers (see United States: 6 November 2008: Low-Cost Carriers in U.S. Beat Drop in Wireless Growth). However, Bell Canada saw a massive drop in net additions that reflected the rapid end-of-year slowdown in the overall growth in wireless subscribers, down 18% on the prior year for the quarter but only 3.7% for the full year—that is the apparent fallout of the economic slowdown.

Fixed-Line

Rogers has been able to continue benefitting from the lack of legacy exposure to the fixed-line voice segment—where it is actually seeing growth through its position as the new competitor in the market as it takes lines from rivals who are also being hit by mobile substitution. Telus has done well on a revenue basis through its focus on the business segment, but Bell Canada continues to be hammered by its legacy exposure and lack of an effective strategy as it attempted and failed to tinker with management and ownership structures rather than initiatives to benefit operational performance. With the BCE deal now out of the way Bell could be in a stronger position—with both cash and a strategic plan developed by the prospective buyers to push the business forward (see Canada: 11 December 2008: BCE Buyout Collapses). However, broadband and video growth somewhat crashed in the latter half of the year—again because of the depressed economic outlook.

Outlook and Implications